India: Shipowners seek RBI backing to rejig loans

Local shipowners have sought Reserve Bank of India’s backing to restructure loans by easing the Rs. 250-crore exposure limit for lenders to consider such rejigs.

Shipping companies are currently outside the remit of the RBI guidelines on loan restructuring because ships are not considered “projects” to be able to qualify for debt restructuring applicable to long-term project loans in the infrastructure sector.

“If you are having a factory or a plant, that’s considered to be a project. But in the case of shipping, buying a ship, the cost of which may/may not exceed Rs. 250 crore, is a project in itself. If you look at the way financing is done, it need not be that one ship is financed by a lender.

“It could be a bunch of three to four vessels combined into one, which is financed by a single bank. So, lenders should look at ship assets on a combined basis rather than on a standalone basis because they all belong to the same category — shipping,” an executive with Tolani Shipping said.

The Indian National Shipowners Association (INSA), the local shipping industry lobby, had discussed the issue with the RBI, suggesting that the aggregate exposure limit of lenders to a borrower of Rs. 250 crore should be either done away with or suitably tweaked to help the industry avail of the restructuring, another shipping industry official said. “To overcome the limitation, shipowners and banks feel that the minimum Rs. 250-crore exposure clause should either be dropped from the guidelines on loan restructuring or the loans raised by a shipping company for buying different ships be clubbed together to comply with the clause,” the official said.

“Without that, it’s going to be futile because the shipping industry has gone through so much of problems in the recent past that some of the companies are really stretched and may require restructuring. In the absence of any guidelines from the RBI, the lenders are clueless on how to deal with such situations,” he said.

The government’s policy managers say that the RBI will have to classify shipping as an infrastructure sector to be able to qualify for loan restructuring. Apart from facilitating debt restructuring, an infrastructure tag would enable shipowners to get long-term funds for buying ships. “Indian banks are comfortable in providing facilities for a maximum tenure of seven to eight years for ships as compared to the economic life of a ship of 25 years, which makes servicing of debt unviable. The revenue streams are subject to vagaries of the trade given the highly cyclical nature of the shipping business. Classifying shipping as infrastructure will enable banks to provide longer-term financing options,” a spokesman for the Shipping Ministry said.

India has a gross tonnage (GT) of about 12.268 million comprising 1,348 ships. The Shipping Ministry has set an ambitious target of raising the country’s tonnage by around four times to 43 million by 2020.